How trade wars become real wars


The foundations of America’s relationship with China crumbled last week. The key developments were a lurch by the US towards protectionism and a swing by China towards one-man rule.

For the past 40 years, the world’s two largest economies have both embraced globalisation, based on understandings about how the other would behave. The Chinese assumed that the US would continue to support free trade. The Americans believed that economic liberalisation in China would eventually lead to political liberalisation.

Both of these assumptions are now shattered. On Sunday, China’s National People’s Congress rubber-stamped a constitutional change that would allow President Xi Jinping to rule for life. Three days earlier, President Donald Trump announced tariffs on steel and aluminium and tweeted that “trade wars are good and easy to win”.

But Mr Trump’s breezy confidence ignores the dangers involved in unleashing a trade war. Those risks are not simply economic: a trade war makes it more likely that, one day, the US and China could slide into a real war.

Until now, the geopolitical ambitions of a rising China have been restrained by the need to keep the west’s markets open. But if America’s protectionism escalates, then China’s calculations will change. And there is, in fact, every chance that Mr Trump’s tariffs are just the opening salvo in a trade war. The measures announced last week were global in nature and do relatively little direct harm to China. But future tariffs, particularly those targeting intellectual property, are likely to be aimed more precisely at Beijing. Peter Navarro, the White House trade chief is, after all, the author of a book called Death by China.

America’s economic challenge to China comes at the same time as an increasingly confident Beijing ramps up its own ideological and geopolitical challenge to Washington. During the Xi years, China has embarked on an ambitious programme of “island building” in the South China Sea, to re-enforce its territorial and maritime claims. The broader goal is to end US dominance of the western Pacific — the site of the world’s most important commercial sea routes.

At the same time, Beijing’s new authoritarianism is promoted not just as a governing method suitable for China, but also as an alternative global model to western democracy.

As the two countries slide towards confrontation over trade, territory and ideology, so the sense of grievance on both sides is likely to increase. The Chinese and American presidents are both nationalists who frequently stoke feelings of wounded national pride. Mr Trump has claimed the world is laughing at America and that China has raped the US. Mr Xi has promised to preside over a “great rejuvenation” of the Chinese people — that will finally bury the “century of humiliation” that began in 1849, when the country was invaded and partially colonised.

The emergence of leaders such as Mr Trump and Mr Xi is a reflection of broader ideological shifts in both countries. Thirty years of stagnant or declining real wages for most American workers have comprehensively undermined the belief in globalisation and free trade in the US. Mr Trump was the loudest protectionist voice in the 2016 presidential field. But even his opponent, Hillary Clinton, was forced to repudiate the Trans-Pacific Partnership free trade agreement that she had once promoted.

Successive American presidents also believed that capitalism would act as a Trojan Horse — undermining one-party rule within China. As former US president George W Bush once said: “Trade freely with China, and time is on our side.” The American establishment believed that a more liberal China would be less likely to challenge the US on the international stage. One of the central tenets of liberal internationalism is that democracies do not wage war with each other.

But political developments in Xi’s China have refuted the expectations of the liberal internationalist worldview that shaped successive American presidencies. China has not become more democratic. Nor is it any longer willing to live quietly within a US-designed and dominated world order.

These changes reflect a growing sense of national power within China, which has given prominence to new ideas and thinkers. In the pre-Xi era, Chinese leaders and academics liked to stress the mutual dependence between their country and the US. The conventional argument was that China’s rapid development was taking place in the context of a US-dominated world — and therefore there was little point in challenging America. But this Chinese version of liberal internationalism is no longer common in Beijing. More recently, Chinese intellectuals have begun to argue that “the US-led world order is a suit that no longer fits” — in the words of Fu Ying, chair of the foreign affairs committee of the NPC.

This new combination of a protectionist and nationalist America, and an assertive and nationalist China, is potentially explosive. But there are also aspects of Mr Trump’s ideology that may make conflict less likely.

Unlike all his recent predecessors, the US president has little interest in promoting democracy abroad. He is likely to be unconcerned by Mr Xi’s move towards one-man rule. Indeed, he may even envy it.